Since the 2026–27 Federal Budget, one question has come up in nearly every family group conversation we have had: what does the proposed 30 per cent minimum tax on discretionary trust distributions actually mean for us?

From 1 July 2028, if it passes as drafted, every dollar distributed through a discretionary trust will be taxed in the trustee’s hands before it reaches beneficiaries. It is the most material change to family trust taxation in a generation, and it reshapes two structures families have relied on for decades: income streaming, and bucket companies.

Below, we answer the questions Andersen clients are raising most often, and outline what to think about before the transitional rollover window opens on 1 July 2027.

What Clients are Asking

What changes were announced on Budget night?

The 2026–27 Federal Budget introduced a sweeping tax reform package, with one of the most significant measures being the introduction of a 30 per cent minimum tax on discretionary trust distributions. This tax will be levied at the trustee level, meaning the trustee is responsible for paying the tax before distributions are made to beneficiaries.

Non-corporate beneficiaries will be able to claim a non-refundable tax credit for tax paid by the trustee, but corporate beneficiaries will not receive credits, which will limit the effectiveness of “bucket company” strategies.

The reform also includes a transitional rollover relief period, starting from 1 July 2027, to allow for restructuring out of discretionary trusts without immediate tax consequences.

This is the most material change to discretionary trust taxation in a generation, fundamentally altering how family groups and professional practices manage their tax affairs.

What type of trusts are impacted?

The new minimum tax applies specifically to discretionary trusts. These are trusts where the trustee has the power to decide how income and capital are distributed among beneficiaries each year. Most family trusts and professional practice trusts in Australia fall into this category.

The reform is designed to target structures that have in some people’s view historically been used to stream income to beneficiaries on lower marginal tax rates, thereby reducing the overall tax paid by the family group or business.

What type of trusts are excluded?

Several types of trusts are excluded from the new minimum distribution tax regime, including:

• Fixed trusts (where beneficiaries’ entitlements are fixed and not at the trustee’s discretion).
  
• Widely held trusts (such as public unit trusts).
  
• Complying superannuation funds.
  
• Deceased estates.
  
• Disability trusts.
  
• Charitable trusts.

These exclusions are intended to ensure that the new rules target only those trusts used for discretionary income streaming, not those serving specific social, charitable, or investment purposes. Further review of the final legislation will be needed.

When are the provisions proposed to start?

The 30 per cent minimum tax on discretionary trusts is scheduled to commence from 1 July 2028. However, a transitional rollover relief period will be available from 1 July 2027, allowing trustees and beneficiaries time to review their structures and, if necessary, restructure into companies or fixed trusts without triggering immediate tax liabilities. This planning window is critical for affected groups to make informed decisions before the new regime takes effect.

What is the impact on my family trust?

If you operate a family trust that is discretionary in nature, you will be directly affected by the new minimum tax. The ability to stream income to family members will be significantly curtailed, as the trustee will pay a flat 30 per cent tax on trust income before distribution.

Non-corporate beneficiaries can claim a non-refundable credit for tax paid by the trustee, but this may be especially disadvantageous to those with a marginal rate below 30 per cent. Corporate beneficiaries will not receive credits, reducing the effectiveness of using “bucket companies” to manage tax outcomes.

Family groups will need to carefully consider whether to restructure their affairs, possibly needing a review of your overall structures, to manage the impact of the new rules going forward.

Is there a death tax on testamentary trusts?

No, testamentary trusts, those established by a will upon death, are specifically excluded from the minimum trust distributions tax. The Budget changes do not introduce a new “death tax” on testamentary trusts. These trusts will continue to be taxed under the existing rules, providing ongoing flexibility for estate planning and asset protection for beneficiaries.

What transitional relief or planning opportunities are available?

A transitional rollover relief period will be available from 1 July 2027. This relief allows assets to be transferred out of discretionary trusts to other entities, such as companies or fixed trusts, without triggering immediate capital gains tax or stamp duty consequences (subject to final legislation).

This window provides a valuable opportunity for family groups and business owners to review their current structures, seek advice, and implement changes before the new tax applies. However, it is important not to rush into restructuring until the draft legislation is released and the details are clear. It is also important to consider the other potential State taxes which can apply in a rollover, for example stamp duty in certain circumstances.

How does this interact with other recent tax changes?

The minimum trust distributions tax is part of a broader package of tax reforms announced by the Treasurer in the 2026–27 Budget. Other major changes include:

• Replacement of the 50 per cent capital gains tax (CGT) discount with cost base indexation and a 30 per cent minimum tax on real capital gains, effective from 1 July 2027.
  
• Restrictions on negative gearing for residential property, limiting deductions to new builds and grandfathering existing properties.
  
• Personal tax relief and a permanent instant asset write-off for small business.

These measures collectively signal a shift towards a broader tax base and fewer concessions for investment income. The interaction of these changes means that family groups and business owners will need to consider the cumulative impact on their tax positions and investment strategies.

See our full analysis in the Federal Budget Report.

What Should You Do Now?

• Do not rush to restructure before the draft legislation is released and properly understood. The details of the new rules and transitional relief are critical and may affect the best course of action.
  
• Use the planning window to review your current trust arrangements, assess your exposure to the new tax, and consider alternative structures.
  
• Seek professional advice from your advisors to understand your options and the implications for your circumstances.

What This Means for You

If you operate a family or discretionary trust, these changes will likely affect your tax outcomes and planning strategies. The new minimum tax will reduce the benefits of income streaming and may prompt a review of your structure. The transitional relief offers a limited window to restructure, but it is essential to wait for the draft legislation and seek tailored advice.

Next Steps

• Review the draft legislation when released.
  
• Contact Andersen to discuss your circumstances as soon as possible. Our team can help you assess the impact, explore restructuring options, and ensure you are prepared for the new regime.

Visit Our Budget Hub

For ongoing analysis visit the Andersen Budget 2026–27 hub.

©Andersen Australia Pty Ltd. All Rights Reserved. Andersen is the Australian member firm of Andersen Global, an association of legally separate, independent member firms located throughout the world providing services under their own name or the brand “Andersen,” “Andersen Tax,” “Andersen Tax & Legal,” or “Andersen Legal.” Andersen Global does not provide any services and has no responsibility for any actions of the member firms, and the member firms have no responsibility for any actions of Andersen Global. No warranty or representation, express or implied, is made by Andersen, nor does Andersen accept any liability with respect to the information and data.